Glossary of Canadian Life Insurance Terms

Terms are admitted here only once at least two articles need them. A definition that only one page uses belongs inside that page.

The terms

Adjusted cost basis. The tax cost of a policy to its owner, and the figure that decides how much of any amount taken out is taxable.

Capital Dividend Account. The notional account of a private corporation through which a death benefit can reach shareholders without income tax.

The exempt test. The calculation that decides whether a policy accumulates value without annual taxation, and the reason deposits are capped.

Dividend scale. The assumptions behind every non-guaranteed figure on a participating illustration.

Why this section is not indexed

A glossary competes with the articles that define the same terms in context. It is kept here for readers who arrive at a word they do not recognise, and it is not offered to search engines as an alternative to the pages that do the teaching.

How these entries are written

Each states what the term means, in one sentence, before anything else.

Then where it appears in a contract or on an illustration, because a reader who meets a term has usually met it on a document rather than in the abstract.

Then what it is commonly confused with, since most of the difficulty in this subject is two similar words carrying different consequences.

And which articles use it, so a reader can return to the page that does the teaching rather than staying in a list of definitions.

What a glossary cannot do

It cannot tell you whether any of this suits you. A definition is context-free by design, and every question worth deciding depends on facts about a household that no definition contains.

Nor is it a substitute for the contract. Where a definition here and a policy differ, the policy governs, and the definitions are written to help a reader understand their own document rather than to replace it.

Why terms are admitted slowly

A glossary assembled ahead of the content it serves is a keyword list.

Entries appear here only once at least two articles need them, and each runs to enough length to be worth a reader's time. A definition that only one page uses belongs inside that page, where it has the context that makes it usable.

Which means this section will stay small. Most of the terms on this site are explained where they arise, in the article that needed them, and that is the better place for them. The four here earned separate pages because they recur across sections and because readers meet them on documents before they meet them in an argument.

If a term you need is missing

It is probably defined inside an article. The search on this site covers the full text of every page, and the term will usually be found in the first paragraph of the section that uses it.

And if it is genuinely absent, that is worth telling us. The contact details are at the foot of every page, and a term that a reader had to look elsewhere for is a gap in the writing rather than in the glossary.

Where these terms come from

All four are Canadian. The adjusted cost basis and the exempt test come from the Income Tax Act and its regulations. The Capital Dividend Account is a provision of the same Act applying to private corporations. The dividend scale is an insurer's own construct rather than a statutory one.

None transfers from American material. The United States uses a different regime for the same underlying questions, and a reader who arrived here from an American article about modified endowment contracts or section 7702 has been reading about rules that do not apply.

Which is part of why the entries exist. Most of the freely available writing on these subjects is American, the vocabulary overlaps enough to be misleading, and a Canadian reader can spend a long time absorbing a framework that will not describe their own contract.

The order worth reading them in

The exempt test first, because it explains why a Canadian policy is shaped the way it is and why deposits are capped.

Then the adjusted cost basis, which decides what any of the value costs to reach.

Then the dividend scale, which governs everything on an illustration that is not guaranteed.

And the Capital Dividend Account last, since it applies only where a corporation owns the contract and is the narrowest of the four.